The FTSE 100 broke intra day but failed to confirm a move above 4675. Given the positive momentum from Wall Street and Asia we would expect a more serious assault on this resistance level today. The medium term target if 4517 holds remains 5500.
There appears to be nothing to stop this current rally in risk assets, particularly equity markets, and even if bad news appears it is currently being ignored by investors as the hope for a “V” shaped recovery consumes investor’s risk appetite. Yesterday saw the S&P 500 break above 1000 and the Nasdaq above 2000 all key psychological levels to boost sentiment. The US dollar, yen and treasuries sank all signs that risk aversion has lleft the party for now. Additional, in a further sign that risk appetite has returned the TED spread, (a measure of financial market stress) has now dropped to its lowest level in more than two years.
Yesterday, apart from the strong earnings reports from UK banks the real boost in sentiment came through from the global PMI data. All the data, US, UK and Europe beat expectations, as highlighted above, but arguably more importantly the subcomponents were robust, particularly new orders in the US and UK. This has fuelled sentiment that the global recovery will be more “V” shaped then expected, but it is also worth remembering that this upbeat data has been dependent on the record global stimulus delivered last year. If this was withdrawn anytime soon then the signs of global strength seen now could unravel just as quickly. With this is mind, the rise in US ISM prices paid index to 55 from 50 will be closely eyed and provides, some, but little justification for rising inflation risk premium being prices into the Eurodollar strip.
Today, the US releases pending home sales and again investors will be watching to see if any signs of stabilisation we have recently noted in the US housing market through existing and new home sales and the Case Shiller index has been dented by the rise seen in mortgage rates since May. Other data releases include US personal income and spending but European data is today light on the ground.
Sources: Reuters: BBC: Bloomberg: Lawshare: Deutsche Bank (db): Proquote: Financial Times: Wall Street Journal: CLSA: Sharescope: Market News. Capital Economics: CNBC: Wikipedia:
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